Section 104 of the Income Tax Ordinance, 2001 explains the taxability of expenses incurred on foreign income.
The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2021. The Ordinance incorporated amendments brought through Finance Act, 2021.
Following is the text of Section 104 of the Income Tax Ordinance, 2001:
104. Foreign losses.— (1) Deductible expenditures incurred by a person in deriving foreign-source income chargeable to tax under a head of income shall be deductible only against that income.
(2) If the total deductible expenditures referred to in sub-section (1) exceed the total foreign source income for a tax year chargeable to tax under a head of income (hereinafter referred to as a “foreign loss”), the foreign loss shall be carried forward to the following tax year and set off against the foreign source income chargeable to tax under that head in that year, and so on, but no foreign loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was computed.
(3) Where a taxpayer has a foreign loss carried forward for more than one tax year, the loss for the earliest year shall be set off first.
(4) Section 67 shall apply for the purposes of this section on the basis that —
(a) income from carrying on a speculation business is a separate head of income; and
(b) foreign source income chargeable under a head of income (including the head specified in clause (a)) shall be a separate head of income.
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